Weber backs extension of eurozone bank aid
THE European Central Bank should continue to assist banks financially until the end of this year, but there can be no lower interest rates to help countries with deeper recessions, the head of Germany's Bundesbank said yesterday.
Axel Weber, who is front-runner to take over from Jean Claude Trichet as president of the ECB next year, said the central bank should help with end-of-year liquidity tensions, before determining in the first quarter when to withdraw emergency lending measures.
This will be welcomed by Irish banks, which are still having difficulty with borrowing and have €70bn of debt to replace by the end of the year -- even though this can be covered by the government guarantee for up to five years.
The euro dropped and the yield on Germany's 30-year bond set a new all-time low, falling below 2.9pc, as Mr Weber's comments suggested the ECB would support the region's banks for longer than some investors expected.
"The comments are rather dovish. He seems to be very cautious," said Juergen Michels, chief euro-area economist at Citigroup in London. "I would have expected that he wanted to start the exit sooner."
Mr Weber also said there were no inflation risks in sight, indicating interest rates may remain on hold for some time. But they would not be kept lower than deemed necessary to help peripheral countries with deep recession and severe austerity programmes, he said.
Ireland would be included among these, although Mr Weber did not mention any by name. "Governments made a deliberate decision to have a euro-area monetary policy, and that means the ECB can only look at the average.
"Of course, that has different effects on different economies, according to whether they are stronger or weaker. That puts the ball firmly in the court of national governments. They need to focus on their own economies and foster growth through structural reform and consolidating their budgets," he said.
Mr Weber's public objections to the ECB decision to buy government bonds called into question his candidacy for the ECB presidency, with some critics saying he lacked the political skills for the job.
Mr Weber said diplomacy was not necessarily a pre-requisite for the post, which will become available on October 31 next year. "One of the central bankers I've always admired was former Fed chief Paul Volcker. You can call him anything, but not a diplomat."